NISKALP ENERGY LTD.(FORMERLY NISKALP INVST. & TRDG. CO.lTD), MUMBAI v. THE DY. C.I.T.-10(2), MUMBAI

ITA 6064/MUM/2008 | 2001-2002
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 606419914 RSA 2008
Bench Mumbai
Appeal Number ITA 6064/MUM/2008
Duration Of Justice 2 year(s) 3 month(s) 20 day(s)
Appellant NISKALP ENERGY LTD.(FORMERLY NISKALP INVST. & TRDG. CO.lTD), MUMBAI
Respondent THE DY. C.I.T.-10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 28-01-2011
Date Of Final Hearing 19-01-2011
Next Hearing Date 19-01-2011
Assessment Year 2001-2002
Appeal Filed On 08-10-2008
Judgment Text
I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH MUMBAI. [ CORAM: D.MANMOHAN V.P. AND PRAMOD KUMAR AM ] I.T.A NO.6064/ MUM/2008 ASSESSMENT YEAR: 2001-02 NISKALP ENERGY LTD .. APPELLANT (FORMERLY NISKALP INVST & TRADG. CO.LTD) DGP HOUSE 4 TH FLOOR OLD PRABHADEVI ROAD MUMBAI-25. PA NO.AABCN 9239 J VS DY.COMMISSIONER OF INCOME TAX 10(2) . RESPONDE N T AAYAKAR BHAVAN M.K. ROAD MUMBAI. APPEARANCES: DINESH VYAS FOR THE APPELLANT NARESH KUMAR BALODIA FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THIS APPEAL IS DIRECTED AGAINST CIT (A)S ORDER DATED 29 TH JULY 2008 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT 1961 FOR THE ASSESSMENT YEAR 2001- 02. 2. IN GROUND NOS.1 & 2 THE ASSESSEE HAS RAISED FOL LOWING GRIEVANCES: 1. THE CIT (A) ERRED IN DIRECTING THE AO TO FOLLOW THE METHODOLOGY LAID DOWN IN RULE 8D(1) PRESCRIBED IN SECTION 14A OF THE INCOME TAX ACT 1961 AND MAKE SUITABLE DISALLOWANCE ACCORDINGLY. 2. WITHOUT PREJUDICE TO GROUND NO.1 ABOVE THE CIT (A) ERRED IN NOT GIVING SPECIFIC DIRECTIONS TO THE AO TO DELETE THE DOUBLE DISALLOWA NCE OF INTEREST OF RS. 35 52 90 000 ALLOCATED BY THE AO TO EXEMPT DIVIDEND INCOME. I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 2 3. AS THE ABOVE GROUNDS OF APPEAL ARE SOMEWHAT INTE RCONNECTED WE WILL TAKE THEM UP TOGETHER. 4. BRIEFLY STATED RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASS ESSEES BALANCE SHEET REFLECTS DIVIDEND YIELDING INVESTMENTS OF RS. 29 362.90 LAKHS. THE A SSESSING OFFICER NOTED THAT AS DIVIDEND INCOME FROM THESE INVESTMENTS IS EXEMPT FROM TAX U/ S.10(33) THE INTEREST EXPENSES ATTRIBUTABLE TO THESE INVESTMENTS SHOULD BE DISALLO WED U/S.14A OF THE ACT. IN RESPONSE TO ASSESSING OFFICERS REQUISITION AS TO WHY RELATED I NTEREST EXPENSES SHOULD NOT BE DISALLOWED THE ASSESSEE PLACES RELIANCE ON TRIBUNALS DECISION IN THE CASE OF MAFATLAL HOLDINGS LTD V ACIT (2004) 85 TTJ (MUMBAI) 821 IN SUPPORT OF THE PROPOSITION THAT WHEN TAXES ARE PAID AT THE TIME OF DISTRIBUTION OF DIVIDEND THE INCOME IN THE HANDS OF THE ASSESSEE IN RESPECT OF THE SAID DIVIDEND CANNOT BE TREATED AS INCOME WHICH HAS NOT SUFFERED TAX THE PLEA WAS REJECTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER FU RTHER NOTED THAT INVESTMENTS HAD BEEN MADE OUT OF A COMMON POOL OF FUNDS WHICH HAS AN AV ERAGE INTEREST COST OF 12.10%. APPLYING THE SAID AVERAGE INTEREST COST THE EXPENS ES ATTRIBUTABLE TO THE INVESTMENTS IN SHARES AND UNITS WERE COMPUTED AT RS 3552.90 LAKHS. ACCORDINGLY INTEREST EXPENSES AGGREGATING TO RS. 35552.90 LAKHS WERE DISALLOWED. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). THE CIT (A) H ELD THAT IN VIEW OF PROVISIONS OF RULE 8D THE DISALLOWANCE HAS TO BE COMPUTED IN ACCORDANCE W ITH THE FORMULA LAID DOWN IN THE SAID RULE. THE CIT (A) THUS HELD THAT IT CANNOT BE SAID THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME AND ACCORDINGLY THE AO WAS REQUIRED TO RECOMPUTE THE EXPENSES ATTRIBUTABLE TO EARNING THE TAXABLE INCOME IN TERMS OF RULE 8D. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 5. LEARNED REPRESENTATIVES AGREE THAT SO FAR AS THE QUESTION OF RULE 8D IS CONCERNED THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESEE B Y THE HONBLE JURISDICTIONAL HIGH COURTS JUDGEMENT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81) BUT A REASONABLE DISALLOWANCE FOR EXPENSES INCURRED IN EA RNING DIVIDEND INCOME IS NEVERTHELESS TO BE COMPUTED BY THE AO. IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BO YCE MFG CO. LTD (SUPRA) AND AS AGREED TO BY THE PARTIES WE REMIT THE ISSUE TO THE FILE OF THE AO TO RE- COMPUTE THE DISALLOWANCE U/S.14A IN THE LIGHT OF TH E LAW LAID DOWN BY THE I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 3 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ BOYCE MFG CO. LTD (SUPRA). 6. WE MAY HOWEVER NOTE THAT IN THE COMPUTATION OF TAXABLE INCOME AS FILED BEFORE US AT PAGES 1 & 2 OF PAPER BOOK THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 33 62 80 044 AS INTEREST ALLOCABLE TO DIVIDEND EXEMPT U/S.10(33) AND INCOME AS RETURNED BY THE ASSESSEE AFTER TAKING INTO ACCOUNT THIS DISALLOWANCE MADE BY THE ASSESSEE . HOWEVER IN THE ASSESSMENT ORDER EVEN AS THE AO HAS TAKEN STARTING POINT OF COMPUTATION A S TOTAL INCOME/LOSS AS PER RETURN OF INCOME HE HAS AGAIN DISALLOWED ENTIRE INTEREST ATT RIBUTABLE TO EARNING THE DIVIDEND INCOME. TO THAT EXTENT THERE IS AN ELEMENT OF DOUBLE DISAL LOWANCE INASMUCH AS THE AMOUNT ALREADY OFFERED FOR DISALLOWANCE BY THE ASSESSEE HAS NOT BE EN REDUCED FROM THE ADDITIONAL DISALLOWANCE MADE BY THE AO. WE THEREFORE MAKE I T CLEAR THAT WHILE RECOMPUTING THE DISALLOWANCE U/S.14A THE ASSESSING OFFICER SHALL T AKEN INTO ACCOUNT THE DISALLOWANCE OF INTEREST SUO MOTO OFFERED BY THE ASSESSEE AND THE DISALLOWANCE MADE BY TAKING THE RETURNED INCOME AS STARTING POINT WILL ONLY BE FOR THE SHORT DISALLOWANCE MADE BY THE AO. 7. IN THE RESULT GROUND NOS. 1 & 2 ARE ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED. 8. IN GROUND NOS. 3 4 5 & 6 THE ASSESSEE HAS RAISE D THE FOLLOWING GRIEVANCES: 3. THE CIT (A) GROSSLY ERRED IN CONFIRMING THE ACT ION OF THE AO BY INVOKING THE PROVISIONS OF SECTION 79 OF THE ACT TO DENY THE APP ELLANT THE BENEFIT OF CARRY FORWARD OF THE LOSS DESPITE HOLDING AND CONFIRMING IN PARA 8.3 ON PAGE 5 OF HIS OWN APPELLATE ORDER THAT THE REVISED RETURN FILED BY THE APPELLAN T DECLARING LOSS OF R.S90 42 32 163 IS TO BE TREATED AS VALID REVISED RETURN AND DIRECTING THE AO TO ALLOW THE LOSS CLAIMED BY THE APPELLANT. 4. WITHOUT PREJUDICE TO GROUND NO.3 ABOVE THE CIT (A) FURTHER ERRED IN CONFIRMING THE ACTION OF THE AO TO DENY THE APPELLANT THE BENE FIT OF CARRY FORWARD OF THE LOSS BY INVOKING AND APPLYING THE PROVISIONS OF SECTION 79 OF THE ACT ON THE GROUND THAT THERE IS A CHANGE IN THE YEAR 2002-03 IN THE SHARE HOLDING PATTERN OF THE COMPANY WITHOUT CONSIDERING THE IMPORTANT FACT THAT THE CHA NGE IN SHAREHOLDING PATTERN DURING THE ASSESSMENT YEAR 2002-03 I.E. THE SUBSEQU ENT ASSESSMENT YEAR CAN HAVE NO BEARING ON THE YEAR UNDER APPEAL. 5. STRICTLY WITHOUT PREJUDICE TO GROUND NOS.3 AND 4 ABOVE THE CIT(A) BY WRONGLY INVOKING AND APPLYING THE PROVISIONS OF SECTION 79 OF THE ACT ALSO GROSSLY ERRED IN NOT GIVING SPECIFIC DIRECTIONS TO THE AO TO ALLOW T HE APPELLANT THE CARRY FORWARD OF UNABSORBED DEPRECIATION AS STATED BY HIM ON PAGE 6 OF HIS OWN APPELLATE ORDER I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 4 WHERE HE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN CIT V. SHRI SUBHALAXMI MILLS LTD 249 ITR 795 (SC). 6. STRICTLY WITHOUT PREJUDICE TO GROUD NOS.3 4 AND 5 ABOVE THE CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE LOSS OF RS. 90 42 32 163 BEING CARRIED FORWARD BY THE APPELLANT FOR THE YEAR UNDER APPEAL IS IN THE NATUR E OF UNABSORBED DEPRECIATION ONLY WHICH IS IN ANY CASE OUT THE PURVIEW OF SECTION 7 9 OF THE ACT AND HENCE OUGHT TO BE ALLOWED TO BE CARRIED FORWARD. 9. TO DECIDE THE ABOVE GROUNDS OF APPEAL ONLY A FE W MATERIAL FACTS NEED TO BE TAKEN NOTE OF. IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE CIT (A) THE ASSESSING OFFICER FILED A PETITION POINTING OUT THAT THERE IS NO CHANGE IN TH E SHAREHOLDING PATTERN OF THE ASSESSEE FROM THE ASSESSMENT YEAR 2002-03 AND THEREFORE THE LOS S CLAIMED BY THE ASSESSEE IS NOT REQUIRED TO BE CARRIED FORWARD. IN RESPONSE TO THE SHOW CAU SE NOTICE ISSUED BY THE CIT (A) IT WAS POINTED OUT BY THE ASSESSEE THAT THERE WAS NO CHANG E IN THE SHAREHOLDING PATTERN DURING THE RELEVANT PREVIOUS YEAR AND THAT IN ANY EVENT WHAT IS SOUGHT TO BE CARRIED FORWARD IS ONLY UNABSORBED DEPRECIATION AND NOT THE BUSINESS LOSS. THE CIT (A) OBSERVED THAT THE ASSESSEE HAS ACCEPTED THE FACT THAT THERE IS A CHANGE IN THE SHAREHOLDING PATTERN TO W.E.F. 2002-03 AND THEREFORE NO LOSS CAN BE ALLOWED TO BE CARRIED FOR WARD AS THE LOSS CAN BE CARRIED FORWARD ONLY BY THE ASSESEE WHICH HAS INCURRED THE LOSS. T HE CIT (A) ALSO TOOK NOTE OF THE HONBLE SUPREME COURTS JUDGEMENT IN THE CASE OF SHRI SUBHA LAXMI MILLS LTD. (SUPRA) WHEREIN IT WAS HELD THAT BUSINESS LOSS CANNOT BE ALLOWED TO BE CAR RIED FORWARD BUT UNABSORBED DEPRECIATION AND DEVELOPMENT REBATE CAN BE CARRIED FORWARD EVEN WHEN THERE IS NO CHANGE IN THE SHAREHOLDING PATTERN BUT PERCEIVE THIS DECISION PO INTED OUT BY THE AO. HE ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND H ELD THAT THE LOSS INCURRED BY THE ASSESSEE CANNOT BE CARRIED FORWARD. THE ASSESSEE IS NOT SAT ISFIED AND IS IN FURTHER APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 11. IN VIEW OF THE LAW LAID DOWN BY THE HONBLE SUP REME COURT IN THE CASE OF CIT V. MANMOHAN DAS 59 ITR 699(SC) THE QUESTION AS TO W HETHER A PARTICULAR LOSS INCURRED BY THE ASSESSEE IN AN EARLIER YEAR IS ENTITLED TO BE S ET OFF AGAINST THE PROFITS OR GAINS FOR THE CURRENT YEAR IS TO BE ADJUDICATED IN THE YEAR IN WH ICH SET OFF IS CLAIMED OR IN THE YEAR AND NOT IN THE YEAR IN WHICH THE LOSS IS INCURRED. IN THIS VIEW OF THE MATTER ENTIRE DEBATE ABOUT ELIGIBILITY OF LOSS TO BE CARRIED FORWARD TO SUBSEQ UENT YEARS IS IRRELEVANT AND DOES NOT NEED I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 5 ANY ADJUDICATION BY US. IN ANY EVENT IT IS AN AGR EED POSITION THAT THERE WAS NO CHANGE IN THE SHAREHOLDING PATTERN IN THE RELEVANT PREVIOUS YEAR AND FOR THIS REASON ALSO THE DISCUSSION IN THE CIT (A)S ORDER REGARDING ELIGIBILITY OF THE LO SS TO BE CARRIED FORWARD IS IRRELEVANT. THE CAUSE OF ACTION FOR DISENTITLEMENT TO BE CARRIED FO RWARD RIGHT OR WRONG CLEARLY DID NOT ARISE IN THE RELEVANT PREVIOUS YEAR. LEARNED COUNSEL HO WEVER POINTS OUT THAT WITH A VIEW TO AVOID UNNECESSARY LITIGATION FOR A SETTLED ISSUE OF LAW WE MUST ADJUDICATE THE QUESTION OF ENTITLEMENT OF THE LOSS TO BE CARRIED FORWARD ON ME RITS. HE SUBMITS THAT THERE IS NO DISPUTE ON THE LEGAL PROPOSITION AS IS EVIDENT FROM A PLAI N READING OF THE CIT (A)S ORDER THAT UNABSORBED DEPRECIATION CAN BE CARRIED FORWARD EVEN WHEN THERE IS CHANGE IN THE SHAREHOLDING PATTERN AND THAT ON THE FACTS OF THE P RESENT CASE IT IS ONLY UNABSORBED DEPRECIATION WHICH IS BEING SAID TO BE CARRIED FORW ARD. ACCORDING TO LEARNED COUNSEL EVEN GOING BY THE LAW AS UNDERSTOOD BY THE CIT (A) THE UNABSORBED DEPRECIATION WHICH HAS BEEN CARRIED FORWARD IN THE PRESENT YEAR IS ELIGIBLE TO BE SET OFF AGAINST PROFITS AND GAINS WHENEVER OCCASION ARISE. WE ARE HOWEVER NOT INCLINED TO A DDRESS OURSELVES WITH THIS ASPECT OF THE MATTER BECAUSE SINCE AS WE HAVE NOTED ABOVE IT IS A WHOLLY INFRUCTUOUS EXERCISE. SO FAR AS THE YEAR I OF SET OFF IS CONCERNED THE QUESTION WI LL HAVE RELEVANCE ONLY WHEN THE SET OFF IS ACTUALLY DECLINED BY THE AO BUT THEN WE ARE SURE TH AT THE AO WILL BEAR IN MIND THE CORRECT LEGAL POSITION WHILE TAKING THE MATTER ON THE QUE STION OF ENTITLEMENT OF UNABSORBED DEPRECIATION BROUGHT FORWARD TO BE SET OFF AGAINST PROFITS AND GAINS WHENEVER OCCASION ARISE. WE LEAVE IT AT THAT. 12. FOR THE REASONS SET OUT ABOVE WE AGREE THAT TH E OBSERVATIONS MADE BY THE CIT (A) WERE WHOLLY UNCALLED FOR. WE VACATE THE SAME. 13. GROUND NOS.3 TO 6 ARE THUS ALLOWED IN THE TERMS INDICATED ABOVE. 14. IN THE RESULT THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011 SD/- (D.MANMOHAN ) (VICE PRESIDENT) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI DATED 28 TH JANUARY 2011 I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 6 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS) VI MUMBAI 4. COMMISSIONER OF INCOME TAX CITY-6 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI I.T.A NO.6064/ MUM/2008 NISKALP ENERGY LTD 7